All investors should review their investments annually to determine if their portfolios asset allocation still meets their objectives. If not, rebalancing may be in order. But beyond rebalancing, there are a few other opportunities that you might want to consider. (iStockphoto)

Due to the volatility of the market this year, it would be wise to take some time to review your investment and retirement portfolios before year’s end.

All investors should review their investments annually to determine if their portfolio’s asset allocation still meets their objectives. If not, rebalancing may be in order. But beyond rebalancing, there are a few other opportunities that you might want to consider.

What follows is a brief list of year-end planning ideas. As always, you should consult with your tax preparer for more information and to see if any of these ideas make sense for you and your unique financial circumstances.

Tax-Loss Harvesting

Are you holding an investment that has lost value since it was purchased in your taxable portfolio? Intentionally selling this investment at a lost to reduce your tax liability is called tax-loss harvesting. The capital loss realized from this transaction can be used to offset capital gains, reducing your tax liability. If your losses are larger than the gains, you can use up to $3,000 of those losses to offset your taxable ordinary income. Any remaining losses can be carried forward and used to offset income in future years.

This technique is as simple as:

–Selling a security that has lost money since you purchased it; and

–Reinvesting that money into a different security that meets the investment objectives of your portfolio.

Be aware of the wash sale rule. In any of your taxable portfolios, if you sell a security and buy a “substantially identical” security within 30 days before or after the sale, it could be disallowed for income tax purposes.

Tax-loss harvesting isn’t beneficial to implement in retirement accounts, because the losses in a tax-deferred account cannot be deducted.

Review capital gains distributions

Consider reviewing the capital gains distributions on the holdings within your taxable portfolio. For example, mutual funds buy and sell securities throughout the year. If those sales result in a net realized capital gain, they must be passed along to the shareholders as a taxable distribution. These distributions typically occur just once at the end of the year, but occasionally a second distribution will occur the following year. Beginning in November, fund companies will publish information on anticipated capital gains distributions.

If the distributions are unusually high compared to the return of the holding, you may choose to sell your position in advance of the distribution record date to avoid receiving the distribution. Further, if you are considering purchasing a new position or more shares of an existing position, you may want to defer the purchase until after the distribution. Capital gain distributions are taxable in the year they occur.

Prior to selling any holding, identify the unrealized gains (or losses) in the holding. If it has unrealized taxable gains, you should evaluate if selling the holding to avoid a taxable distribution aligns with your overall investment portfolio management strategy.

Give the Gift of Cash

Do you want to give a gift of cash? In 2018, you can give a gift of cash up to $15,000 to as many different people as you want without incurring the gift tax. The $15,000 is a per-person limit, not a total limit. Gifts up to this amount—called an annual exclusion—are not reportable on your tax return. A husband and wife can each make a $15,000 gift, giving as much as $30,000 to as many people as they choose each year. This technique is as simple as writing a check.

Give the Gift of Securities to Your Favorite Charity

Donating long-held, highly appreciated taxable securities—stocks, mutual funds, and exchange-traded funds that have realized significant appreciation over time—is one of the most tax-efficient ways to give. To qualify for long-term status, the assets must be held more than one year.

Giving securities to charity provides numerous benefits:

— You avoid capital gains taxes on the future sale of the securities.

— You receive a tax deduction for the full fair market value of the securities up to 30 percent of your adjusted gross income (AGI).

— Because you are not paying capital gains taxes on the gift, you can significantly increase the amount of funds available for charitable giving. Put another way, you are gifting the full value of the security, not the net after-tax value.

Most banks and brokerage firms require you to sign a letter of instruction to transfer the shares to a charity, so don’t wait until the last week in December to begin this task—or it may not happen this year. Give yourself time to request the form, sign it, and have it processed so it is completed prior to year-end.

Qualified Charitable Distributions

At the end of 2015, lawmakers approved a permanent measure allowing individuals who are 70½ years old or older to make qualified charitable distributions (also known as QCDs) directly from their individual retirement accounts (IRAs) to their favorite qualified charities.

A few facts:

–The QCD can only be made on or after the date the IRA owner is 70 ½ years old.

–The distribution must be paid directly from the IRA to the qualified charity. Your financial advisor can provide the form necessary to process this request from your IRA.

–QCDs are limited to $100,000 per person annually. Married people can each give $100,000 annually.

–The amount of the QDC is limited to the amount of the distribution that would otherwise be included in income.

–While the donor won’t see a separate line for the deduction on Schedule A, they also will not see any income reported from the IRA on the tax return.

Traditional IRA Distributions

Required minimum distributions must be taken each year from an IRA beginning in the year that a person turns age 70½. The distribution is calculated based as the prior year’s December 31 balance divided by the applicable distribution period or life expectancy provided by the Internal Revenue Service.

Also, if you own an inherited IRA, the RMD rules may apply to you. Inherited IRAs are typically opened for non-spouse beneficiaries (since spouses can transfer inherited assets directly into their own retirement accounts). The distribution rules for an inherited IRA are different than the rules for a traditional IRA. As the beneficiary, you are required to take a minimum distribution annually or withdraw all funds within five years of the original owner’s death.

These annual withdrawals are taxed as ordinary income. Forgetting to take your RMD can have painful results: You may be liable for a 50 percent tax penalty on the missed distribution.

Disciplined investment habits can help lead to long-term financial success. Spending time reviewing your portfolio at year-end and consulting with your tax and financial advisors will help ensure that you are well positioned for years of continued financial progress.

Teri Parker is a vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. Contact her via email at teri.parker@captrustadvisors.com.

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